Dow has been exceptionally reticent about this potential sale, and news of it was not announced by the company, but reported by The Financial Times via anonymous sources at the end of March.

The newspaper said that Dow is working with investment bank Citi to sell four PP plants: two in the US, and two in Europe.

Dow's PP resin business is expected to generate $1.5bn (€1.05bn) in sales for 2011, or roughly 3% of Dow's total sales for the year, noted Kevin McCarthy, an analyst at Bank of America Merrill Lynch (BoAML).

McCarthy said, "We view such a move as logical" in regards to the company's "ongoing portfolio transformation."

In March 2010, when Dow was selling its Styron unit to Bain Capital, CEO Andrew Liveris said: "We are committed to further focusing our portfolio by shedding non-strategic assets that can no longer compete for growth resources inside the company."

Reasons to divest the PP units, according to McCarthy, include the fact that "lower commodity petrochemical exposure enhances portfolio stability and growth." Also, the profits from the sale will allow the company to reduce its elevated financial leverage; and "it would diminish Dow's large [3.8bn lb/year, 1.7m tonne/year] short position in propylene monomer, a building block that is structurally tight and has inflated rapidly."

Dow's global PP capacity is 995,000 tonnes/year, according to BoAML. McCarthy estimated a value of $450m-750m for the company's PP assets, "although valuation could be influenced greatly by any embedded propylene supply arrangements."

LOOKING FOR BUYERS

According to BoAML, PP is the fastest-growing commodity resin in the world. In 2010, US consumption is forecast to be 11bn lb, up 5% from 2009. US exports should decline 16% to 3bn lb in 2010. Global consumption of PP is expected to grow by 4% in 2010 and 5-6%/year from 2009-2014.

Several consultants, when contacted about the move, expressed essentially the same sentiment: "I am not surprised that they are selling," said Joe Pilaro, president of the US-based consultancy BRAE Partners.

"PP does not fit with Dow's long-term goals," said Robert Bauman, president of US-based Polymer Consulting International. "They have never been really committed to PP."

"Dow's raw material stream is natural gas-liquids based and the propane content of that is very low, as opposed to others who may be naphtha-based," said Barry Zimmerman, principal of US-based consultancy Pragmatica.

"Ethane is an advantaged feedstock in the US, and we anticipate a favorable oil-to-gas ratio to continue," Dow's vice president for hydrocarbons Raja Zeidan said in December, when the company announced plans to boost ethane cracking in the US by 30% in the next three years.

Ethane, which yields little co-product propylene, accounts for 65% of US cracker feed slates, while naphtha, which yields around 10 times more propylene than ethane, makes up only 15% of feedstock.

"Dow feels it is a good time to sell. Companies [currently] have extra money," says Bauman.

Zimmerman adds that potential buyers should have inexpensive sources of naphtha, "and you have to go to the Middle East to look for that answer."

In addition to any potential antitrust issues that may come up if Dow's US-based PP units are purchased by an American manufacturer, Pilaro does not see the attraction of Dow's PP to established PP producers.

"I just do not see it going to a strategic buyer," he said, adding that a company such as SABIC - which is already manufacturing PP in Saudi Arabia - would not want to enter the commodity arena in the US.

"My bet is that private equity would be the way [Dow] could go," said Pilaro, citing Bain Capital's $1.63bn purchase of Dow's Styron unit.

"The field is open," said Bauman: "It is not clear whether an existing PP producer would buy the Dow PP unit, but somebody who might want to get into PP, or a financial buyer."

Brazil-based producer Braskem has also been mentioned as a potential buyer because of its 2010 purchase of Sunoco's PP assets for $350m. Other PP manufacturers include LyondellBasell, Reliance, Formosa, Total and Sinopec.

Higher PP prices have pressured buyers into accepting less product, which in turn forces producers to reduce output.

Demand picked up for March, but buyers are expected to step back again in April, when PP prices are expected to go up again. At the end of the first week of April, US PP prices increased to 90 cents/lb. According to ICIS, at least one producer rescinded a previous 10 cent/lb increase in anticipation of expected polymer grade propylene (PGP) increases for April.

PP is responsible for around 60% of propylene consumption. US propylene output is estimated at 13.6m tonnes/year, with steam crackers accounting for about one-third of that total.

The remaining propylene comes from refineries, where it is produced as a byproduct of gasoline - and faces trouble there from reduced demand due to improved vehicle fuel efficiency and the increasing use of renewable fuels

SECONDARY MARKET

In the secondary market, brokers had residual inventories of generic prime homopolymer at 85-87 cents/lb DEL (delivered). Spot railcars of copolymer were offered at 90-92 cents/lb DEL, nearly on par with fresh offers for homopolymer.

Initial April PGP nominations were up by 11-12 cents/lb from March, but PP market participants said they now expect monomer contracts to settle 12-13 cents/lb higher.

Producers in the European PP market were pushing hard to recoup the €25/tonne increase in upstream propylene costs and some margin besides for April business at the start of the month, although the bid to hike prices was met with mixed responses.

After starting the month with nominations of €25-50/tonne, almost all producers canvassed by ICIS agreed that it was impossible to push prices beyond the €25/tonne mark, as record high prices were stifling demand. However, none were willing to offer below this level, as production costs were still high.

During the first week of April, PP producers across Latin America increased prices.

Demand was steady in most places, and even strong in some markets. However, the current high prices were expected to cause at least a temporary slowdown in requirements.

As assessed by ICIS, Argentina's PP prices are increasing by at least $49/tonne, despite the government's attempts at controlling inflation. Prices ranged from $1,914/tonne to $2,296/tonne, depending on the particular grade of PP.

INCREASED PRICING

Petroquim, Chile's primary PP producer, increased prices on all grades of PP by $70/tonne, to $1,970/tonne.

Brazil's sole PP producer, Braskem, said it was seeking an increase of $93/tonne, driving Brazilian prices for the polymer to $2,870-$3,011/tonne.

Transportation uses, such as automotive bumpers, are the major end-market for injection-molded PP.

Other uses for the material include container caps and closures, appliance parts, disposable syringes and a variety of household items.

In the fiber area, PP is used in carpet backing and has a growth market in carpet yarn. PP films provide optical clarity and low moisture transmission in food packaging and labels.

Additional reporting by Linda Naylor in London, David Barry, William Lemos and George Martin in Houston